On December 30, 2020, just days after President Trump signed the Consolidated Appropriations Act (CAA) 2021 into law, the Department of Labor’s Employment and Training Administration published guidance for states on implementing unemployment insurance programs. After waiting weeks for Congress to agree on the finalized budget for 2021, the stimulus package authorized by the CAA, among other unemployment benefit programs, “extends the Pandemic Unemployment Assistance (PUA) program created by the CARES Act in March 2020. This provides Unemployment Insurance (UI) benefits to gig workers, freelancers, independent contractors, and others not traditionally eligible for them.”
The Bureau of Labor Statistics classifies independent contractors, or gig workers, as alternative work arrangements. Their data showed that in 2017 they made up 6.9% of all U.S. employment, making it the largest segment outside of traditional work arrangements. However, this sector of the workforce has largely increased over the years due to technology advances, shifts in personal finance goals, and many other reasons.
The newest edition of the PUA extends the eligibility period for 11 more weeks. Benefits will cover any week of unemployment ending on or before March 14, 2021. Those who have not exhausted their reimbursements by that deadline can continue to receive unemployment insurance under the PUA until the week ending on or before April 5, 2021. Those who are eligible for the assistance will receive $300 a week on top of the state-issued unemployment benefits. These funds are not retroactive and are only available for individuals who are unemployed on or after December 26, 2020.
When companies classify their workers as “independent contractors,” as opposed to employees, they are not obligated to pay payroll taxes. Two of the most commonly referred to examples are companies like Lyft and Uber, whose drivers are not considered employees. There are very few safety net benefits available for independent contractors when they lose their job because their contracting employer does not pay into any unemployment system required by the state. This makes independent contractors, freelancers, and those who consider themselves in the gig economy, vulnerable to every change in the economy, especially during a pandemic.
Companies that classify their workers as employees must pay payroll taxes, which make up a large portion of the fund for state and federal unemployment insurance programs. Many states are losing reserves from their budgets to subsidize the UI programs under the CARES Act that was extended for independent contractors in March 2020. Unfortunately, many policymakers focus on the financial deficit unemployment programs are creating and not on the lack of “safety nets” available for less traditional workers.
The Harvard Business Review claimed in July that the COIVD-19 pandemic is a “public policy opportunity to make gig work in the U.S. work better for everyone.” In 2018, they published a study that found that “the stakes of independent work are enormously high” and that most in the industry realize it is a “produce or perish” type of working environment. With the gig economy being so variable at its core, the unprecedented closures, stay-at-home orders, and loss of clients have made them some of the most financially vulnerable during the COVID-19 pandemic.
The reason to participate in this sector of the economy ranges from providing a full income to supplementing an income to either increase financial independence or get out of debt. For those that only work part-time as an independent contractor, COVID-19 has wreaked even more havoc. While the CARES Act has relieved many in the gig economy, it has disadvantaged what the Department of Labor calls “mixed earners," or those who earn part of their year’s income as an independent contractor or freelancer, and the rest from a more traditional salary. Most states disregard self-employment income when calculating the unemployment benefits an individual is qualified for, therefore putting these “mixed earners” at a disadvantage for receiving adequate unemployment insurance.
The 2021 CCA now creates a fund for those “mixed earners.” Those who are eligible will receive an additional $100 a week to the $300 available under the PUA. To qualify, a worker must prove they make at least $5000 a year in self-employment income but are disqualified from receiving PUA assistance because they receive state unemployment insurance for their wage or salary.
Additionally, after many states encountered fraudulent unemployment claims spiking once gig workers and self-employed individuals became eligible for UI under the PUA, the new law “strengthens documentation requirements” for both new and current applicants. For those who are applying for the first time, they must provide substantial documentation proving they are self-employed. Those who have already begun to receive unemployment benefits have 90 days to submit the same documentation.
The guidance issued by DOL also gives states discretion when an individual receives overpayment during their PUA benefit period. DOL states applicants should not be required to pay back the overpayments “when the individual is not at fault for the payment and repayment would be contrary to equity and good conscience.” However, the DOL was silent on how to facilitate that discretion and what adequately qualifies as “good conscience” and “equity.”
The DOL “anticipates releasing further program-specific Unemployment Insurance program letters to states” to provide “legal and programmatic guidance” on provisions such as extended benefits, funding to address fraud, Mixed Earners Unemployment Compensation, Merit Staffing Flexibilities, and more.
